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Relationship marketing: a competitive advantage for B2C

This article appears in the issue June 2001 [Volume 10, Issue 6]

The ever-evolving Internet is driving explosive growth in e-commerce, customer service, and other real-time, interactive, transaction-based business activities. According to AMR Research, despite the implosion of the dot.coms, Internet retail sales are projected to reach $100 billion by 2003, up from $29 billion over the last four quarters. Web-based marketing, based upon a new concept of customer relationship management, is radically changing virtually all of our conventional business models and forcing corporate America to rebuild them from scratch.

Both buyers and sellers are seeing just the tip of the e-commerce iceberg in the form of globalization of markets, a transaction-based economy, marketing-driven business process re-engineering, elimination of conventional middlemen, and mergers and acquisitions in unprecedented volume. "Bricks and mortar" is swiftly being replaced by "clicks and mortar" as the new, ubiquitous, customer-focused, cyberspace paradigm inexorably takes hold.

The current, multi-channel, e-commerce-driven, customer service climate demands instant gratification, at any time, from any place, in any way, through any medium--interactive Web site, telephone, e-mail, fax, PC or wireless device. In today’s consumer-centric environment, the rule is that if it takes a customer more than five seconds to get what they want, the company has lost that potential buyer. Failure to deliver personalized, consistent, reliable accessibility to customized service is a distinct competitive disadvantage. Alternatively, taking advantage of this opportunity entails delivering a rapid but personalized response to the customer wherever—and whenever—he or she chooses to interact with the seller. Web-based, customer-focused marketing enables companies to consistently sell the right product to the right person at the right time at the right price.

Despite all the hype about the Internet, however, the basic rules of business remain the same. The recent failure of numerous dot.com-based businesses demonstrates that in any business environment, companies must adhere to established business practices while they are integrating e-business transactions into their business model. As companies adopt a customer-focused, e-business platform as an essential component of their business process infrastructure, it is imperative that they do not abandon all they have learned to date about what it takes to deliver and maintain customer satisfaction. Just as with the old, traditional business activities, the goal of e-commerce should be to optimize each transaction, so that each one is timely and cost-effective for the customer while at the same time being profitable to the seller.

The emergence of relationship marketing Many companies spent the better part of 1999 making sure their enterprise systems were Y2K compliant. Now, with both feet firmly planted in the next millennium, information technology personnel are evaluating applications and implementations for the future. More and more companies are discovering the value of relationship marketing (RM) strategies. Convincing evidence can be found in The Cowles Database Marketing Newsletter, which reports that customer relationship programs launched within the past 12 months have increased by 37%.

In a way, the relationship marketing approach represents a modern way of going "back to the future." Before the era of mass marketing, customer service was personal and tailored to the individual. Selling and product customizing was done on a one-to-one basis, and the salesperson and customer usually knew each other personally. But, at the same time that automation, computerization and mass production grew, and as customer support shifted from the storefront to the back office, customer service became an increasingly impersonal process. It turns out that the very agent of depersonalization--the computer--also has the power to collect enormous amounts of personal data, to analyze and synthesize them, and then mine the results to draw valid conclusions based upon discovered patterns of individual human behavior. As a result, over a relatively short time, the capabilities of the computer and the Internet have combined to enable present-day managers to dramatically reinvent and personalize the concept of customer service, which for so long has been based on the mass marketing paradigm.

Ideally, contemporary relationship marketing can be defined as a business strategy that proactively builds a bias or preference for an organization with respect to three audiences--its individual employees, its channel partners and its customers. It accomplishes that task by adopting a high-tech solution that, through enhanced performance, increases retention of those groups. Seen from this perspective, relationship marketing can be described as a set of automated functions that guides customer transactions so that they respond positively to the marketing message and goals of an online business campaign. Along those lines, successful relationship marketing is dependent on not only the ability to smoothly execute certain business and operational tactics, but also the ability to implement it using the right tools and technology as well.

The perfect relationship marketing system would be able to handle all customer-marketing interactions in a fully automated way. In the real world, however, a relationship marketing system typically contains a mechanism for identifying questions that need to be referred to a customer service representative.

From a knowledge management standpoint, Internet-centric relationship marketing is a way for a firm to set up its set of user transactions so that--based on historical, contextual information and extrapolations--individual consumer interests and likely buying propensities can be recognized, profiled and then catered to in a highly individualized way. The optimal solution redefines the customer experience. It eliminates phone conversations with customers, both e-customers and the brick-and-mortar variety. The goal is to guide the customer directly to those products and services that hold the most interest for him or her and to present them in a manner that encourages a positive conclusion to the transaction. In that manner, RM software can be used to create a Web site that can sell both products and services while promoting targeted messages.

Nowadays, sophisticated e-savvy consumers require a lot more than traditional marketing strategies because the marketplace is not the huge but simple setting for which those strategies were originally created. In today’s complex and evolving business environment, a winning e-commerce strategy entails more than executing transactions efficiently. Contemporary customers are essentially selfish: online, looking for even more individual attention, even more responsiveness and much more customization. For them, state-of-the-art relationship marketing does not boil down to simply implementing tactics from a single specialty area such as branding, customer service or CRM technology, and then expecting that activity to automatically trigger profitable, long-term relationships. Rather, it means spoiling those customers by delivering them value beyond the immediate transaction--and being able to target those customers to whom it is worth delivering that added value. Relationship marketing software meets this requirement and yields additional profitability for its users by supplying them with the programmatic means for identifying precisely those customers who harbor the most lucrative potential, so they can be selectively cultivated.

Relationship marketing equals competitive advantage Today’s emerging Internet paradigm continually challenges a business' ability to differentiate itself from the competition. In this high-speed, computer-driven business world, customers prefer to deal with those companies that are the most consistently accessible. Ease of customer access to a company's brand--and subsequent fulfillment of service requests--are fast becoming the most critical elements of global business strategy.

Web-based relationship management solutions can be used to create virtual storefronts based on industry knowledge of retailing. The more that Web shopping is made to emulate a normal shopping experience--without the usual hassle--the more likely it is that people will be comfortable in visiting the Web storefront. Relationship marketing can make the virtual store look just exactly the way an individual would like it to appear (for example, the virtual store only carries their sizes and color preferences), as opposed to a real brick-and-mortar store, which offers the same menu and appearance to everyone. The customized, browser-based, GUI is created from not just a general set of characteristics that are demographically driven, but is individually user-driven, based on the specific customer’s profile.

Customization is a particularly powerful factor in relationship marketing when it plays on the law of large numbers by broadcasting a personalized marketing message over the Internet. The accessibility of a vast, electronic, networked, interactive audience is the major factor that makes things so different now from pre-Internet times. High hit rates caused by more intensively focused target marketing, coupled with the vast reach of the World Wide Web, can create a multiplier effect that ends up driving market growth at geometric rates. Amazon.com and eBay.com are but two of the obvious examples that come to mind as examples of the powerful multiplier effect of wholly automated, Web-based relationship marketing.

Relationship marketing is more than another sales tool for increasing sales and market share. It’s a powerful device for retaining key customers as well. For example, it is quickly becoming standard practice for a retailer to track each customer's transaction history and behavior over their lifetime with that company, then apply a multiple-channel, intelligent profiling system that can forecast when a customer is changing his or her behavior, and act on that prediction.

That allows a company to ratchet up the attention it pays to a client when he or she is considering a change of vendors. The higher the quality of the client, the more mission-critical the situation becomes. Likewise, the more intense and continuous the dialogue between a retailer and a customer is, the more difficult it becomes for the customer to defect. The capability of rescuing potentially "lost" customers and turning them into loyal buyers is clearly a competitive advantage. Examples would include banks and insurance companies that use relationship marketing models that predict when a customer is ready to jump ship.

By using sophisticated and robust relationship marketing software, it is possible to identify customers visiting a company Web site, track their purchases, identify their interests, develop customer profiles and display custom ads and custom product recommendations based on predefined rules that specifically address various kinds of profiles. This can be accomplished while ensuring that proper security measures are in place to protect the customer’s privacy.

Requirements of a successful RM software solution Most relationship marketing software functionality is managed with a user-friendly GUI that makes designing campaigns, profiling customers and applying existing marketing resources intuitive and easy to manage--without the hassle of developing spreadsheets, learning scripting languages or using command line programming. The diagram outlines the functions and capabilities of a successful relationship marketing solution.

Web site content supported should include multiple catalogs, FAQs, product descriptions, complex searches, as well as customized views of the products and services being sold. Additionally, there should be support for accessories, substitutions, plus various packaging and bundling options. Content navigation options must incorporate hierarchical browsing in addition to feature-based search and product/price comparisons. Requirements for supported pricing methods include priority pricing, timed promotional pricing and customer group discount pricing, in a manifold of currencies, including the Eurodollar.

A good RM software package will include powerful customer data management utilities that allow users to create and continuously update explicit customer profiles for all visitors to the site, and to process and refine implicit behavioral customer data sets. That capability enables a marketing manager or administrator to customize the company’s home page, maintain multiple lists, as well as automatically schedule orders and reschedule reminders. By making use of built-in catalog and rules-based capabilities, it is also possible to provide unique and personalized information to customers on the home page.

Additionally, robust business intelligence capabilities will enable out-of-the-box, multiple types of reports that organize Web site data and customer behavior into formats that include the following categories: revenue, orders, products, customers, page views by region, site overview, product, click paths and customer search results. The existence of ready-to-use, predefined reports saves companies the time and expense of hiring a report writer to produce scores of different reports. RM software should provide usage analysis on individual pages, time spent on each page and impressions; and visitor analysis, which would include classifying visitor origins, visitor interests, and visitor navigation behavior. Functions and reports will be primarily focused on site operation analysis (broken-link analysis, performance analysis, browsers used, etc.), while there will be other reports that focus on commerce analysis (campaign and initiative impressions, clicks, and business results, sales by category, etc.). Additional business intelligence in the form of data mining can uncover hidden or implicit patterns of consumer purchasing behavior. Analysis results then can be used to create a campaign model, run it against sample data sets, and deploy the optimized campaign.

Relationship management personalization capabilities permit a marketing executive to categorize customer propensities, predict shopper behavior, define campaign parameters, and target specific customer groups by leveraging out-of-the-box components such as customer profiles, product attributes and shopping carts. Those functions should be implemented with the aid of an easy-to-use GUI that enables and controls a powerful rules engine for creating and managing business rules; a runtime engine that executes rules and renders Web pages; and development tools for extending various e-commerce business processes beyond the walls of the corporation.

Marketing executives and other non-technical people can implement relationship marketing with browser-based RM software tools that provide four areas of functionality: marketing, merchandising, operations and customer service. Using those tools, a marketing director can define, personalize and maintain campaigns and initiatives around the company’s unique requirements with the aid of a set of demographic and profile-oriented templates that together serve as a model for building specific programs. They enable the business manager to control all of the different market segments that are dynamically generated as people go to the company Web site. Once the relationship management functionality is set up and implemented, staff personnel can operate the online store.

Through the use of RM software, a marketing manager can manipulate, customize and manage the entire life cycle of a relationship marketing campaign on an ongoing basis. The first stage involves creating a model based on the analysis of previous campaign data, which leads to the development and promotion of a variety of relationship marketing elements. For example, based on an analysis of customer interactions and preferences, the Web site developer would create a series of "e-marketing spots" that are defined by their location coordinates on a series of Web pages that are dedicated to marketing messages and product descriptions--equivalent to the various aisles and counters in a virtual Web store. Next, business intelligence routines would analyze what is taking place on an ad hoc basis and create a variety of reports--revenue, orders, products, customer search results, etc.--for the marketing executive who is free to adjust the campaign model accordingly.

For example, he or she can change the content of predefined e-marketing spots and populate them on an as-needed basis. Once the refined model is in place, more data can be collected and the cycle can be started over, albeit on a more fine-tuned basis. The result is a continuously running, "closed loop" management model that allows a marketing manager to optimize a company relationship marketing campaign by making incremental adjustments or even by radically reorganizing it, depending on up-to-the-minute feedback.

From advantage to necessity As is so often the case in real life, relationships make the retail world go ’round. Relationship marketing architecture is like a complex ecosystem, with distinct but interconnected software layers optimized for sales and service, order processing and decision support, which together essentially mimic all of the functions of an extremely intelligent marketing administrator and a personal sales representative, supported by a smooth-running back office. The decision to adopt a relationship marketing solution is primarily strategic in nature: The goodwill and repeat business generated through improved consumer interactions and increased walletshare should warrant the investment in a closed-loop relationship marketing architecture. Bottom-line benefits include increased customer loyalty and retention, maximization of revenue per customer and Web site "stickiness."

For the Web shopper, relationship marketing creates a richer, more consistent, more usable, and happier experience on an e-commerce site. Customers get more information out of their experience with less noise. They will be offered promotions on products that may be of interest, based on their customer profile, what they have placed in their shopping cart already, or other scenario-based criteria. They can more easily find what they want and purchase it. By anticipating their needs, a relationship marketing approach makes them feel special or known. Ultimately, a successful relationship marketing implementation will create for each customer the illusion that each and every one of his or her previous contacts and transactions has been remembered and carefully considered. In doing so, it adds value to the experience and makes each future visit appear as a progressive step in an interactive and growing relationship.

The power of relationship marketing at present is an intriguing but optional capability that gives companies a competitive advantage by personalizing their Web marketing campaigns. But today’s supercharged e-commerce marketplace is fast changing all of that. In the not-too-distant future, owning that marketing power no longer will constitute a competitive advantage: it will be an operational necessity.

Good relationships boost profits Every account manager knows that the cost of retaining an existing customer is a relatively small fraction of the cost of acquiring a new one. In fact, according to Deloitte & Touche (deloitte.com), it costs five times as much to acquire a new customer as it does to keep an existing one. By creating cross-selling opportunities and by opening new sales possibilities, high-quality customer service improves customer retention even as it increases customer "walletshare." Indeed, according to “The Loyalty Effect” by Frederick Reichheld, an additional 5% retention in customers over their collective lifetimes results in an 85% to 125% increase in company margin over that same time period. Moreover, according to surveys by the Database Marketing Institute (dbmarketing.com), it is not unusual for the top 16% of a company’s customers to account for 105% of its profits, while the bottom 28% erode its profits by 22%. That suggests that developing strong relationships with the elite segment of a firm’s customer base will ensure healthy profits.

It turns out that the very agent of depersonalization--the computer--also has the power to collect enormous amounts of personal data, to analyze and synthesize them, and then mine the results to draw valid conclusions based upon discovered patterns of individual human behavior.

From a knowledge management standpoint, Internet-centric relationship marketing is a way for a firm to set up its set of user transactions so that--based on historical, contextual information and extrapolations--individual consumer interests and likely buying propensities can be recognized, profiled and then catered to in a highly individualized way.

Arthur Gingrande is a partner with IMERGE Consulting (imergeconsult.com), 781-258-8181 or e-mail arthur@imergeconsult.com.


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